Calculating profits or losses for a trade is essential for every trader to master. Fortunately, you don’t have to carry out enormous calculations; instead, you can use a forex profit calculator to accurately and quickly calculate the PnL. Using this calculator only requires a few basic inputs, which may include the details of the currency pair being traded, the trader’s account currency, the trade size, and the trade opening and closing prices. You may also need to indicate whether you buy or sell a currency pair. Once you’ve given the correct data to your forex calculator, the tool quickly calculates the difference between the entry and exit prices and multiplies it based on the pip value of the trade to give you the final result.
Factors to Consider When Choosing a Forex Profit Calculator
Can you use any forex platform that you come across on the internet? Of Course not! There are some important factors that you need to consider before choosing a trading platform.
First and foremost, you should check whether the forex profit calculator you plan to use only provides basic functions such as profit and loss calculations or also shows margin calculations, currency conversion, and position sizing. Since there are separate calculators for each of these calculations, you may not necessarily need them, so better be aware of the features beforehand. The calculator should also be compatible with the trading platform you use.
Also, remember that a user-friendly interface can make it much easier and quicker to calculate your profits and losses, so it becomes important to find a calculator that’s easy to use.
Most of the forex calculators are provided free of cost. As such, if any website is charging a fee for giving you access to the forex calculator, it may not be worth spending a penny on it. If you insist on using a paid calculator for any reason, make sure that the cost is reasonable and fits within your budget. The last but the most important factor is the accuracy of the calculator. You may not want to make any trading mistakes because of incorrect results given by your broker. To avoid this, you can test the calculator thoroughly by inputting different values in different scenarios.
How to Calculate Profits and Losses in Forex Trading
The profit or loss in a trade is the difference between how much money you have earned or lost. To do this, you need to know two essential pieces of information: your position size and the number of pips the price has moved.
Let’s understand this through a simple example. Suppose you enter a trade on GBP/USD with a lot size of 100,000 at 1.3175. If the price moves from GBP/USD 1.3175 to 1.3195, it’s moved up by 20 pips. In this case, the 20 pips movement equals USD 200 (100,000 x 0.0020). To determine the right lot size, you can also take the help of a lot calculator, which precisely tells you the ideal lot size you should trade, thus making it easier for you to determine the leverage you should apply to have a profitable trade.
To find out if it’s a profit or loss we should know the direction of the trade, which can either be long or short.
Considering both scenarios,
If the direction of the trade in the above example is long and prices increase, it’s a profit. In this example, it’s a USD 200 profit. Alternatively, if the prices go down from 1.3175 to 1.3155, it would be a USD 200 loss.
If the price of a currency pair increases in a short position, it’s a loss. In this example, it will be a loss of $200. Alternatively, if the prices moved down from 1.3175 to 1.3155, it would be a profit of 100 USD.
Using a Forex Profit Calculator to Determine Risk-reward Ratios
Calculating the risk-reward ratio is crucial for risk management. To calculate it, you need entry and exit points. You can start by determining the difference between the entry point and stop-loss prices, representing the risk. Then you need to calculate the difference between the entry point price and the profit target, representing the reward.
Once you have these two values, you can apply the risk-reward ratio formula, which involves dividing the risk by the reward. If the ratio is greater than 1, it means the risk is greater than the reward. For example, a 4:1 ratio implies that the risk is four times greater than the potential reward. If the ratio is less than 1, it means that the reward is greater than the risk. For example, a 1:3 ratio implies that the potential reward is three times greater than the risk.
Calculating the risk-reward ratio tells you if a trade is worth taking. So, it’s definitely very important, but if you are not good at manual calculations, you can always use a forex profit calculator.
It requires the stop loss and take profit levels for your trade. The stop loss is the level at which you will close the trade if the price moves against you, while the take profit level is the level at which you will close the trade if the price moves in your favour.
You can input them into the forex profit calculator along with the position size and currency pair being traded. The calculator will then show you the potential profit or loss for the trade and the risk-reward ratio.
Advantages and Limitations of Using a Forex Profit Calculator
Advantages
- Get a Precise Idea About the Outcome – A forex trading calculator allows you to estimate the potential outcomes of a trade that helps you mitigate risk and optimise reward. This allows you to formulate the trading strategy with greater accuracy and precision.
- Compatible With Several Operating Systems – A forex trading calculator is also greatly compatible with all popular operating systems such as Windows, macOS, Linux, iOS, and Android. This means that no matter what device you use, you can always have access to this valuable trading tool. The best part is that trading calculators are not resource-intensive, you can run them on a budget laptop or a top-of-the-line smartphone as efficiently as a brand-new device.
- Get Quick & Accurate Results – A profit calculator takes the guesswork out of complex calculations by giving the potential profit or loss in a second. This means you can focus on what you do best: trading the market.
- Helps Determine Risk/reward Ratio – As discussed above, the forex profit calculator also enables traders to compute and determine their risk/reward ratio, which is crucial in managing risk and achieving sustained trading success. Using the forex calculator, you can precisely calculate the appropriate take-profit or stop-loss levels for each trade, ensuring that you take appropriate measures to protect your account and avoid substantial losses.
- Helps Traders Act Quickly While Trading – The speed of decision-making is crucial when it comes to intraday forex trading. It requires traders to act quickly and make informed decisions, and a forex profit calculator can really help with that by allowing for effective risk management and appropriate position sizing.
Limitations
- A forex profit calculator relies on accurate and up-to-date information to give accurate results. However, given the market’s volatility, it may only sometimes be possible. Therefore, it is important for traders to use forex profit calculators as a guide and not solely rely on them to make trading decisions.
- The calculator only takes into account the basic inputs, such as entry and exit prices, lot size, and currency pair, without considering other factors that may affect the trade, such as market volatility, liquidity, costs, slippage etc.
Forex Profit Calculator Vs Manual Calculations: Which One is Better?
When calculating forex profits, we can’t say one method is better than the other as both, a forex profit calculator and manual calculations, have pros and cons.
While a forex profit calculator can help traders save time and reduce errors by quickly calculating profits and losses, manual calculations can help traders better understand how trades work and gain valuable experience in risk management and position sizing.
In terms of accuracy, both methods can produce reliable results as long as the correct inputs are used. Ultimately, the choice between using a forex profit calculator or manual calculations is up to the trader to decide which is best suited.
Is there a calculator to calculate crypto profit?
Yes, now you can also calculate crypto to crypto and crypto to INR profit, in which you can keep the calculation of how much profit and loss is happening in the future and at present. This calculator will be available only on India’s first home-ground cryptocurrency exchange BuyUcoin.
Conclusion
A forex profit calculator can be particularly useful when deciding whether to enter a new trade or when evaluating the performance of an existing trade. These calculators can provide real-time updates on a trade’s profit or loss, which is especially important in fast-moving markets, where quick decisions are necessary.